UAE. Deloitte has just launched the eighth edition of the GCC Powers of Construction report, which provides an overview of the construction industry performance in the gulf countries.

The report cites a robust pipeline of projects currently in the planning stages, which indicates there is still demand for construction projects, driven by social needs, initiatives associated with economic transformation plans, government’s commitment towards investment in infrastructure, as well as tourism related projects.

Deloitte’s report highlights the importance of greater private sector participation to improve the delivery of social services, including healthcare, education, transportation and utilities infrastructure.

Cynthia Corby, Audit Partner and Infrastructure & Capital Projects Leader for Deloitte Middle East says “The use of different forms of private sector participation in the gulf economies such as public-private-partnerships, attracting foreign direct investment through the easing of restrictions and privatization of state-owned assets are key elements to achieve the GCC leaders’ visions for socio-economic reform and fiscal balance”.

In the current economic environment, investment into construction projects by governments, regional private and international investors is less aggressive than it used to be. Construction companies also face challenges in raising debt as GCC banks remain risk-cautious on the sector.

Kosta Georgiadis, Head of Debt Advisory at Deloitte says: “The banking system in the UAE and KSA, the two largest real estate development markets in the region, has maintained a healthy level of deposits from both the public and private sector and there continues to be appetite to deploy much of this liquidity back into the market”.

“Local banks are able and willing to avail financing to feasible projects based on acceptable debt and equity levels (usually 60-70% loan to construction arrangements), provided that developers are capable and prepared to stand behind the project with additional equity and debt servicing support should the project experience any unanticipated delay or softening in revenues,” he added.

Also examined in the Deloitte report are the challenges associated with the recent introduction of a Value Added Tax (VAT) in the UAE and Saudi Arabia, suggesting options to mitigate related risks through adopting appropriate processes and controls.

“The challenges to a successful implementation of VAT cover 3 main areas – that is financial, commercial, and operational. On the financial side and in an industry operating on thin margins, one of the biggest areas of concern would be the planning for cash flow impacts. It is crucial that developers and contractors perform a comprehensive impact assessment to determine the additional cash flow needs, as this will have an effect on their working capital requirements. The other important issue is understanding when the time of supply (the tax point) arises, so that you can ensure it is not inadvertently triggered in a way that brings forward your VAT liability,” explains Bruce Hamilton, Indirect Tax Partner at Deloitte.

The Deloitte GCC Powers of Construction 2017 report is a set of insightful thought provoking articles by subject matter experts, and in-depth interviews with prominent industry leaders from the region, on various topics of current importance, the diverse challenges contractors continue to face on their daily business operations, as well as opportunities and innovative practices the industry is moving towards.

If you would like to discuss the report in more detail, please contact Cynthia Corby.

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About Deloitte & Touche (M.E.):Deloitte & Touche (M.E.) is a member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is a leading professional services firm established in the Middle East region with uninterrupted presence since 1926. DTME’s presence in the Middle East region is established through its affiliated independent legal entities, which are licensed to operate and to provide services under the applicable laws and regulations of the relevant country. DTME’s affiliates and related entities cannot oblige each other and/or DTME, and when providing services, each affiliate and related entity engages directly and independently with its own clients and shall only be liable only for its own acts or omissions and not those of any other affiliate.

Deloitte provides audit, tax, consulting, financial advisory and risk advisory services through 25 offices in 14 countries with more than 3,300 partners, directors and staff. It is a Tier 1 Tax advisor in the GCC region since 2010 (according to the International Tax Review World Tax Rankings). It has also received numerous awards in the last few years, which include best Advisory and Consultancy Firm of the Year 2016 in the CFO Middle East awards, best employer in the Middle East, the Middle East Training & Development Excellence Award by the Institute of Chartered Accountants in England and Wales (ICAEW), as well as the best CSR integrated organization.

The information contained in this press release is correct at the time of going to press.

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